A mutual fund is an open-end investment company that holds a portfolio of securities. An investor may invest in an undivided interest in the portfolio by buying shares of the mutual fund. The mutual fund can be actively managed by a manager or a group of managers. The management uses its collective judgment in deciding which securities to include in the mutual fund's portfolio from day to day. In this case, the management is typically under a fiduciary duty to keep confidential the actual portfolio of securities held by the fund, except possibly in circumstances disclosed in the fund's prospectus.
An exchange-traded fund (“ETF”) is a type of fund that can share characteristics of both mutual funds and other exchange-traded assets like stocks. Like a mutual fund, an ETF can derive its value from a portfolio of securities. In particular, an ETF may derive its value from the portfolio of securities held by a mutual fund. In this case, the mutual fund is said to be the “underlying fund” of the ETF. Like other exchange-traded assets (and unlike a mutual fund), an ETF can be traded on a secondary market, such as on an exchange or over the counter.